After Home Market Rout, Lenovo Hopes for Brighter 2016

In the past year and a half, few smartphone markets have shifted as quickly as China’s—and few smartphone makers were caught as flat-footed by those changes as Lenovo Group Ltd., a technology pioneer in the world’s most populous nation.

The problem, says Gianfranco Lanci, corporate president and chief operating officer of the Chinese company, was that Lenovo was too tightly wedded to its traditional operator sales channels. That meant having a reliable conduit sales when carriers like China Mobile Ltd. were doling out juicy subsidies to attract consumers.

But as operator subsidies fell and upstarts like Xiaomi Corp. pioneered a powerful new Internet sales model, Lenovo was caught off balance. In just one year, its No. 3 market share ranking evaporated, leaving Lenovo at No. 8 by the end of 2015, according to Counterpoint Technology Market Research.

Last May, Lenovo launched a me-too Internet brand, dubbed Zuk Mobile, and began assiduously courting feedback from its users, part of a consumer-driven development model first championed by Xiaomi.

But there are limits to the Internet sales channel too, Mr. Lanci found, both in China and abroad.

“If you look at Internet sales, whether in mature or emerging markets, it reaches a certain ceiling”—peaking at somewhere around one third of total sales, he said. In other words, Mr. Lanci says, “Traditional retail channels will continue to be important everywhere.”

But even Lenovo’s dominant legacy market share in the PC business didn’t equip the company for success in that realm.

So Mr. Lanci now says the company is working on building those channels up, in hopes of stabilizing Lenovo’s position in its home market.

Motorola’s traditional strengths in mature markets like the U.S., and in Latin America, helped the combined company account for 5.1% of smartphone sales last year, according to Gartner, down from 6.5% in 2014 but just enough to stay ahead of No. 5 Xiaomi.